Advanced Revenue Management (ARM) – Cost to Cost

A lot of businesses operate using cost to cost revenue recognition method for their Project Revenue Management. The cost to cost method is used by project accountants to determine the amount of revenue that can be recognized over a time frame by using the percentage of completion derived from the ratio of incurred project cost to anticipated (budgeted) project cost.

The formula for the cost to cost method is to divide all costs recorded to date on a project or job by the total estimated amount of costs that will be incurred for that project or job. The result is an overall percentage of completion that is then used for billing and revenue recognition purposes.

The cost to cost method is only possible if your business is using project or contract accounting and job costing accurately to always be reflecting the most current and live financial information using best practice systematic methods. The cost to cost revenue recognition schedule can be slightly biased towards the earlier stages of a project/contract due to the nature of higher spending in the ramp up phase of a project.

What is your best option to emulate cost to cost methodology in NetSuite?

Using Advanced Revenue Management, a user can create a Revenue Recognition Forecast Schedule via the Revenue Recognition % Complete Override menu within Revenue Plan setup. It’s important to mention that a business would need to have a sales order generated and tied to a project. Advanced Revenue Management, Project, and Project Management features must be enabled for this business process as well. Also note that using this overrides the default “Percent Complete” Revenue Recognition NetSuite functionality which is based off time entries and Project Scheduling using NetSuite Project Management features.

In order to create a forecast revenue plan for a project, first build a revenue plan based on accounting periods on the project’s percent complete override sub tab, and make sure the Use Percent Complete Override for Forecasting box is checked. Then, link a revenue recognition forecast rule to the project. Add the Project linked to the Revenue Recognition forecast rule to the appropriate sales order.

In the percent complete override section, select the accounting period and enter the cumulative percent complete for each accounting period. Using ongoing project analysis tools or setting up a calculated field or automated report upon month close, check on the current percentage completion rate to adjust the cumulative percent complete for each accounting period as needed month to month.